Scottsdale wins ruling over water-damage policy exclusion

A federal appeals court on Friday ruled in favor of Scottsdale Insurance Co. in litigation over water damage to a Jewish organization’s building, agreeing with a lower court that an exception to a policy exclusion did not apply.

Chabad of Key Biscayne Inc. in Key Biscayne, Florida, filed a claim under its all-risks commercial policy with Scottsdale after a drain or sewer pipe broke and water accidentally discharged or leaked, causing damage, according to Friday’s ruling by the 11th U.S. Circuit Court of Appeals in Atlanta in Chabad of Key Biscayne Inc. v. Scottsdale Insurance Co.

Scottsdale denied the claim under its policy’s general water damage exclusion. It offered $5,000 under the coverage’s “water backup or overflow of sewers and drains” extension, but refused to pay more for Chabad’s $247,585 loss. 

Chabad filed suit in U.S. District Court in Miami, arguing that an exception to the water damage exclusion applied.

The district court ruled in Scottsdale’s favor, concluding that the exception applied only to surface water, or to water under the surface of the ground “while Chabad’s damage fell under damage from sewer or drain backup or overflow,” the panel’s ruling said.

The appeals court panel agreed with the lower court. “Because the exception to the exclusion at issue here does not apply, there is no coverage,” the decision said.

Attorneys in the case did not respond to requests for comment.